What Happened?
A number of stocks jumped in the afternoon session after the SaaS sector continued to rally as favorable inflation data bolstered hopes for a Federal Reserve interest rate cut. This optimism was largely driven by a benign July Consumer Price Index (CPI) report, which solidified investor expectations for a Federal Reserve interest rate cut. Following the release of the inflation data, which showed a year-over-year increase of 2.7%, the probability of a rate cut in September surged to over 96%. Lower interest rates are typically beneficial for growth-oriented technology stocks, as they can reduce borrowing costs and increase the present value of future earnings. Adding to the positive sentiment was a 90-day delay in the imposition of higher tariffs on Chinese goods, which reduced trade-related uncertainty for the technology sector.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Vulnerability Management company Rapid7 (NASDAQ: RPD) jumped 5.7%. Is now the time to buy Rapid7? Access our full analysis report here, it’s free.
- Marketing Software company Upland (NASDAQ: UPLD) jumped 3.3%. Is now the time to buy Upland? Access our full analysis report here, it’s free.
- Automation Software company Appian (NASDAQ: APPN) jumped 3.3%. Is now the time to buy Appian? Access our full analysis report here, it’s free.
- Listing Management Software company Semrush (NYSE: SEMR) jumped 3.2%. Is now the time to buy Semrush? Access our full analysis report here, it’s free.
- Cloud Monitoring company PagerDuty (NYSE: PD) jumped 5.7%. Is now the time to buy PagerDuty? Access our full analysis report here, it’s free.
Zooming In On PagerDuty (PD)
PagerDuty’s shares are somewhat volatile and have had 14 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 9 days ago when the stock gained 3% on the news that the Software as a Service (SaaS) sector rebounded following the sell-off in the previous trading session as a weaker-than-expected U.S. jobs report increased the probability of a Federal Reserve interest rate cut. The July Nonfarm Payrolls (NFP) report showed the U.S. economy added only 73,000 jobs, significantly below the 110,000 forecast. This, combined with downward revisions for May and June, signaled a cooling labor market to investors. In response, market expectations for a September interest rate cut by the Federal Reserve surged from roughly 40% to over 80%. A potential rate cut is generally favorable for growth sectors like technology and SaaS, as lower rates can increase the present value of their future earnings, boosting stock valuations.
PagerDuty is down 10.6% since the beginning of the year, and at $16.10 per share, it is trading 25.6% below its 52-week high of $21.65 from December 2024. Investors who bought $1,000 worth of PagerDuty’s shares 5 years ago would now be looking at an investment worth $545.76.
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